Yellen warns against erasing rules
GRAND TETON NATIONAL PARK, Wyo. — Federal Reserve chairwoman Janet Yellen delivered a broad rebuttal Friday to Republican criticism that financial regulation is impeding economic growth.
Yellen said changes since the global financial crisis, which began a decade ago, have significantly improved the resilience of the financial system.
“The events of the crisis demanded action, needed reforms were implemented and these reforms have made the system safer,” Yellen said in remarks prepared for delivery Friday morning at an annual monetary policy conference here.
The speech amounted to a warning to the Trump administration, which is pressing regulators to loosen or remove some of those regulatory changes.
“Already, for some, memories of this experience may be fading — memories of just how costly the financial crisis was and why certain steps were taken in response,” Yellen said.
Yellen’s forceful support for financial regulation may complicate her prospects for renomination as Fed chair. Yellen’s four-year term ends in February, and President Trump has said he is considering a replacement. Gary Cohn,
Trump’s chief economic adviser, whom Trump has described as a candidate for Yellen’s job, is an architect of the administration’s regulatory plans.
Yellen rarely spoke about regulatory issues during her early years as chairwoman, but has addressed the topic with regularity since Trump became president. She has argued consistently that changes were needed after the financial crisis and that those changes should not be reversed.
On Friday, she cautioned several times against overconfidence in the health of the financial system. She noted, for example, that policymakers gathered here a decade ago were optimistic about the resilience of the system — which was even then in the process of falling apart. One goal of the changes enacted since the crisis is to guard against problems that regulators do not anticipate.
Yellen said large banks have shifted to a more stable mix of financing. The share that comes from equity investors, known as capital, has roughly doubled, while the share that comes from the least stable source, short-term wholesale borrowing, has decreased roughly by half.
“Reforms have boosted the resilience of the financial system,” she said. “Banks are safer.”
She said a variety of indicators suggest that investors share the Fed’s assessment.
Yellen said there was no clear evidence that increased regulation had been causing broad or deep reductions in the availability of loans, but she said it was more difficult to assess whether there might be smaller impacts.
Yellen extended an olive branch to the Trump administration, saying that the Fed was committed to reviewing the impact of regulations and that it saw specific areas with room for improvement. Fed officials have said repeatedly that they would like to reduce the regulatory burden on smaller financial institutions.
“The Federal Reserve is committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system,” she said.